Foreign Direct Investment Inflows and Governance Nexus: Evidence from the United States, China, and Singapore

Farrukh Nawaz Kayani and Christopher Gan ()
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Farrukh Nawaz Kayani: Hamad Bin Khalifa University, Doha, State of Qatar
Christopher Gan: Faculty of Agribusiness and Commerce, Lincoln University, New Zealand

Review of Pacific Basin Financial Markets and Policies (RPBFMP), 2022, vol. 25, issue 04, 1-18

Abstract: This study investigates the relationship between inward foreign direct investment inflows and governance of the United States, China, and Singapore. The study employs governance indicators including control of corruption, government effectiveness, regulatory quality, political stability and the absence of violence, rule of law, voice, and accountability to examine the relationship between inward foreign direct investment flows and governance for the period 2002–2019. The baseline regression results are based on bivariate and multivariate regressions with fixed effects. The results confirm a direct and significant relationship between governance and foreign direct investment. The results are robust while applying other regression techniques such as Prais–Winsten regression, Driscoll–Kraay regression, and a two-step system generalized method of moments’ estimation. More specifically, all six governance indicators including control of corruption, government effectiveness, regulatory quality, political stability and the absence of violence, rule of law, voice, and accountability exhibit the same i.e., direct and significant relationship. The paper also suggests various recommendations for investors at the individual and country levels.

Keywords: Foreign direct investment; governance indicators; control of corruption; system generalized method of moments (search for similar items in EconPapers)
JEL-codes: C19 F21 (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1142/S0219091522500308

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